Coalminers talk up synergies

NSW-focused coal groups
Aston Resources
and
Whitehaven Coal
expect to extract up to $775 million in synergies through their proposed $5.1 billion merger, according to Aston’s scheme booklet for the deal released on Friday.

The deal, which will go to a shareholder vote on April 16, is set to create cost savings through share infrastructure and output of higher value metallurgical coal products, according to Aston Resources chairman
Nathan Tinkler
.

“The merged group will become one of the major global suppliers of semi-soft coking and pulverised coal injection coals with the potential to maximise margins and access a broader customer base and will hold a unique strategic infrastructure position," Mr Tinkler said.

Mr Tinkler owns 32 per cent of Aston and 100 per cent of his private company Boardwalk Resources, which has also been included in the deal.

Mr Tinkler has expressed strong support for the merger.

However, he has declared that he will not vote any Aston shares that he controls at the shareholder meeting to approve the transaction.

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Whitehaven is the largest coal producer in the Gunnedah Basin and owns five mines in the Gunnedah Basin. It is also developing the Vickery project, a proposed open-cut mine expected to commence production in the second half of calendar year 2013.

According to the scheme booklet, the directors of Aston and Whitehaven believe the merged group may be able to achieve synergies of between $575 million and $775 million.

The higher number in this range is almost $100 million higher than the upper estimate provided by PricewaterhouseCoopers, which acted as independent expert on the transaction. It had identified synergies in the range of $510 million to $680 million.

The directors of Aston and Whitehaven believe PricewaterhouseCoopers’ assessment of some potential costs savings were conservative. “The independent expert notes its assessment of infrastructure savings and efficiencies and operational cost synergies, two of the key categories of the synergy benefits, are regarded as conservative, which is a view shared by the Aston and Whitehaven directors," Aston’s scheme booklet read.

Deutsche Bank analysts estimate $500 million could be saved from the deal. The merged Aston-Whitehaven is expected to produce combined saleable production of 25 million tonnes a year by 2016.

According to Aston’s scheme booklet, the merged group would improve production by exploiting their combined infrastructure, and allow them to prioritise the production of higher-margin coals, particularly during periods of infrastructure constraints.

The directors of Whitehaven and Aston have also identified cost efficiencies through enhanced marketing opportunities, a stronger bargaining position with suppliers and the elimination of various duplicate corporate overheads.